The first contributor to the euro’s fall was obviously the big day for the anti-bailout True Finns. Now Moody’s is downgrading all of Ireland’s bank to junk. Also, there have been several rumors this morning about to do a debt restructuring, something the government officially denies. Greek 10-year yields are nearing 14%! In addition to the sell off in the euro, European equity markets are down across the board.

When looking back at the Great Financial Crisis of 2008, the primary catalyst that pushed the system over the edge and required central banks around the world to institute a global bailout of unprecedented scale was one simple thing: the layering upon layering upon layering of bets (using “other people’s money” and courtesy of recently unleashed “financial innovation” in the form of virtually margin-free securities such as credit derivatives

The decision of the ECB to raise rates has to be seen as a policy decision that—in a worst case—a sovereign default by an Ireland, or Greece or Portugal would be less harmful than endemic inflation. But is that right? How much damage would be wreaked if Greece or Ireland or Portugal attempted to reduce the nominal amount they owe to levels they felt they could afford?